Representatives from Detroit’s two retirement funds began face-to-face talks with deputies of Kevyn Orr, the city’s emergency fiscal manager, over his plan to cut pension benefits, which union leaders say is illegal.

Orr’s proposal to restructure Detroit’s more than $17 billion in debt and long-term obligations includes cutting pension payments, ending cost-of-living increases, removing some workers from the system and making the rest pay more.

“We all recognize the city is in trouble, and everyone has to make a sacrifice,” said Joe Barney, a paramedic and a union representative for Detroit emergency medical services workers, after the first of two meetings Wednesday. He said he was “angry, frustrated” that Orr treats the pensions as unsecured creditors, like lenders “who refuse to come into this city.”

Orr, who didn’t attend the sessions, is trying to avoid what would be the nation’s biggest municipal bankruptcy if Detroit sought court protection. The meetings gave his team a chance to lay out how his plan would affect the pensions. More specific steps await an actuarial report on the funds, which Orr has said owe a combined $3.5 billion more than they have assets to cover – a figure disputed by system trustees.

Barney said he gets telephone calls daily from union members fearful their pension benefits will be cut. Orr has proposed that city employees with less than 10 years of vested service be taken out of the defined-benefit plan and be moved to 401(k)-style savings plans.

Human costs

“We’ve done our share to try to fix this place,” Barney said. The system covers about 30,000 workers and retirees.

“For us, this is about putting food on the table,” said Dan McNamara, the Detroit Fire Fighters Association president. He said it was disturbing to hear talk of cutting pensions for people who get $1,000 a month or less from the system. “We’re talking about human beings here, not bondholders looking for a return on investment.”

There’s no way employees or unions will bargain away pension benefits, Michael VanOverbeke, a lawyer for the general employees retirement system, said after the meeting. Michigan’s constitution prohibits changes in accrued pension benefits, he said. Orr has said that a bankruptcy filing would negate the state protection.

Cuts outlined

Orr, in a June 14 report to creditors and union officials, said the city will defer about $104 million in pension contributions. The city has since defaulted on a $39.7 million payment owed on related debt, incurred to beef up the system. Orr has also proposed moving retirees who qualify into federal health-care programs such as Medicare to ease $5.7 billion in unfunded benefits for former workers.

Without changes, Detroit’s cost to cover annual pension obligations will rise to $233 million by 2015 and $331.5 million by 2020, out of a projected general-fund budget of about $1 billion, Orr has indicated.

“The emergency manager hopes that they will understand the need for urgency in getting to know how much the pensions are underfunded so that both sides can agree on how much is available to fund them,” Bill Nowling, an Orr spokesman, said by email before the meetings. He has said nothing precludes unions from negotiating benefit changes.

The pension systems last month set aside a combined $5 million for legal action to fight any changes sought by Orr, who on June 20 ordered an investigation by the city auditor and inspector general into employee-benefit programs. The emergency manager wants to examine questionable investments by the funds, such as real-estate ventures, Nowling said at the time.

Creditor tour

Orr canceled a bus tour set for Wednesday that was to bring creditors into Detroit’s blighted neighborhoods. It was supposed to show them why he plans to pay less than 10 cents on the dollar for unsecured debt and spend $1.25 billion over 10 years to upgrade public safety and tear down vacant structures.

The emergency manager met privately Wednesday with about 30 creditor representatives instead of taking them on the tour.

The creditors “would like to spend more time conducting due diligence research into the city’s financial state while they are in Detroit,” Nowling said. He said Orr still wants lenders to see first-hand the issues residents deal with each day.

About 40 percent of Detroit’s house lots are vacant or unused, according to a nonprofit redevelopment group called Detroit Future City. Once among the nation’s top 10, the city has lost more than a quarter of its population since 2000.

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